KGI Research analyst Kenny Tan has initiated “outperform” on Mainboard-listed Sarine Technologies with a target price of 49 cents, based on 25 times FY2022 earnings per share estimates.
In his report dated May 6, Tan sees the manufacturer and seller of precision products for the evaluation, processing and grading of diamonds and gemstones, as a beneficiary from the recovering diamond market as “sales of rough diamonds are back at healthy levels” from the Covid-19 trough.
“Sarine should benefit from a normalisation of industrial activity,” writes Tan.
SEE:Sarine Technologies posts 1Q net loss of US$1.4 mil
Tan is also positive on Sarine’s diamond journey, which addresses the growing concerns of sustainable, conflict-free diamonds. Its e-Grading software could also be a game-changer in the diamond grading industry, he says.
The company’s application for a dual listing of its shares on the Tel-Aviv Stock Exchange (TASE), as well as the recent raid by Indian tax authorities on Diyora & Bhanderi Company – the company that is allegedly infringing Sarine’s patent and copyright protected technologies -- are also positives.
“We like Sarine’s turnaround story, although the return of Covid-19 cases in India could dampen business recovery in the latter half of 2021. We valuate the e-Grading business separately at around 30 to 60 US cents (40 to 80 cents), but do not account it into our target price, until we observe for sufficient adoption rates within the industry,” he writes.
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“Sarine looks to report 1QFY2021 results in the 2nd week of May. Further upside from our target price can come from positive e-Grading progress or stronger than expected equipment sales.”
As at 12.17pm, shares in Sarine Tech are trading flat at 57.5 cents.
